VC Perspectives from a Former Entrepreneur – Jeff Bussgang

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Monthly Archives: May 2009

Amid the hoopla a few weeks ago at the annual NVCA meeting, where the focus was rightly on improving liquidity, it was barely noticed that a new chairman was elected – Polaris co-founder and managing general partner Terry McGuire, one of the leading life sciences investors in the industry. In normal times, the NVCA chairman is hardly an earth-shaking position (although certainly of higher value than FDR’s Vice President John Garner felt about his office). But these are hardly normal times and the NVCA chairman is bound to find himself in the middle of many interesting policy debates in the coming year. I was therefore intrigued by Terry’s election and so talked to him the other day about his new role.

Terry co-founded Polaris in 1996 after seven years as a VC at Burr Egan. His focus on life sciences emerged over the last 10 years, although he started in the business as a generalist and has had no formal medical training or education. In addition to his impressive life sciences portfolio (including Sirtris, GlycoFi and Cubist), Terry was the initial investor in one of the most successful VC deals of all time, Akamai, a company that Polaris invested in (alongside Battery) with an $8m Series A in 1998 and then went public in 1999 and commanded a peak market capitalization of over $20 billion shortly after the IPO (the market capitalization is now $3.5 billion, as the company has successfully “grown into its valuation” and become the leading in the content delivery market).

Terry’s ascension to chair of the NVCA comes at an interesting time, to say the least. In our conversation, he made a few observations in his usual soft-spoken but pointed waythat I found particularly interesting:

(1)Small Ball. At $20-30 billion per year, the venture capital industry as a whole remains a “drop in the bucket” in terms of capital deployed relative to the over trillion dollars sitting in private equity firms. Yet the impact is enormous, with 18% of GDP provided by venture-backed companies. Thus, there is great (positive) leverage in the VC model and, as a result, policy makers should be paying more attention to it and demonstrate an interest in how to accelerate it.

(2)Wanted: Grumpy Old Men. There is a tremendous need for “old guys” to stick around in the VC business rather than fade off into the sunset. In the private equity world, the industry leaders hang around forever well past their 50s and 60s. In VC, it’s considered more naturally a young person’s game (perhaps because we’re always dealing with waves of new technology, young founders). Yet, the VC business takes a long time to figure out. The industry needs the investors who were around in the pre-bubble era (1980s and first half of the 1990s) to stick around and impart their wisdom on the next generation, who has grown up in the business during unusual times. It is scary to reflect on how few of the 7,000 professionals active in the industry today were general partners before Netscape’s IPO in 1995.

(3)Life sciences. With the incredible advancements in genomics, computational power and miniaturization, we are arguably entering into a golden age of innovation in life sciences (which encompasses healthIT, medical devices, diagnostics, and touches adjacent areas such as materials science and robotics. Having an NVCA chairman steeped in that world, at a time when the US Government is looking to perform a top-down re-engineering of the health care system, which is projected to make up 20% of GDP in a few years, is good timing indeed.

(4)Boston. With 14 teaching hospitals and world-class research and entrepreneurship factories like MIT and Harvard, Boston has arguably emerged as the top life sciences start-up environment. With related technology advancements in energy technology and strong legislative support from the state of Massachusetts, it is arguably uniquely positioned there as well. Admittedly it is a distant second to California in software and Internet innovation, but as a proud Boston-based VC, I was pleased to see Terry brimming with confidence in Boston as an entrepreneurial hub.

It will be a year of both challenges and opportunity for the VC industry, butTerry was eager to dig in during the year ahead.

Like this:

For as long as I can remember, I have been an enthusiastic participant in sports. To be clear, I'm not a great athlete (in fact, I'm the only one of the five Flybridge General Partners that wasn't a varsity athlete in college), just good enough to participate passionately and aggressively like the prototypical weekend warrior. During any of my amateur sports efforts — whether competing in mini-triathlons, tackling hard ski runs, or trying to jump the wake while Water-skiing — I've always enjoyed pushing myself and approaching the task fearlessly.

This week, for reasons that will become clear shortly, I was reflecting on why it is that I am so fearless as a competitor, even as I've gotten older. I came up with two reasons. First, I'm not afraid of losing or failing and, second, I'm not afraid of getting hurt. The former is probably because winning has never my ultimate objective, but rather the fun of competing and the enjoyment of achieving some level of mastery.

And I've probably never been afraid of getting hurt because I've never gotten hurt. I've been simply very lucky. That is, until 6 weeks ago when a collision during a Saturday morning pick-up basketball game caused my ACL tendon to rupture. My luck ran out.

That's why I'm typing this blog from bed, with my left leg strapped into a continuous motion machine, barely able to propel myself on crutches, and in excruciating pain.

During my recuperation period this week, one question I've been contemplating is – when I'm back to full strength, will I return to sports with the same aggression, or will I have lost some of my fearlessness?

Ironically, it is the identical question I struggle with as an investor. Vinod Khosla once said it takes 7 years and $30 million in losses to train a venture capitalist. Although I haven't lost $30 million of my LPs' and partners' money in my 7 years as a VC, I have made my share of bad investments. When I look back on my struggling deals and do my post-mortem with my partnership (something we do during our annual strategy offsite), I point to the mistakes I made and errors I'll try to correct the next time.

But I think I now appreciate that Vinod's point is something broader than being a good VC requires learning from failure. It also requires the fearlessness to pick yourself up after failure and take high risks again and again. Not losing confidence in your ability to judge good people, good opportunities and good markets is the key to transforming those early failures into more consistent successes going forward. Vinod and other legendary VCs still make their own investment mistakes 20 years later, but they remain fearless in willing to plunge forward to back the next big idea and great entrepreneur.

With this challenging economic environment, VCs are facing more than their share of failure – and there's more to come. Let's hope for our industry's sake that we VCs all bounce back with the same spring in our step that I intend to have 6 months from now on the basketball court.